Oil prices fell on Friday as OPEC and Russia considered easing supply curbs to offset disruptions in Venezuela and an expected drop in Iranian exports.
Russian Energy Minister Alexander Novak has had talks with Saudi Energy Minister Khalid al-Falih on an easing of the terms of the global oil supply pact that has been in place for 17 months, Novak said on Friday.
The energy ministers of Saudi Arabia, Russia and the United Arab Emirates are discussing an output increase of about 1 million barrels per day (bpd), sources told Reuters.
Brent crude futures were down 44 cents at $78.35 a barrel at 0738 GMT, having hit their highest since late 2014 at $80.50 this month. US West Texas Intermediate (WTI) crude futures were at $70.38 a barrel, down 33 cents.
The Organization of the Petroleum Exporting Countries (OPEC) as well as a group of non-OPEC producers led by Russia started withholding output in 2017 to tighten the market and prop up prices. Global crude supplies have tightened sharply over the past year because of the OPEC-led cuts, which were boosted by a dramatic drop in Venezuelan production.
The prospects of renewed sanctions on Iran after US President Donald Trump pulled out of an international nuclear deal with Tehran have also boosted prices in recent weeks.
US investment bank Jefferies said that increased output from Russia and OPEC “may be necessary to keep the market supplied”, especially if US sanctions lead to a drop in Iranian exports later this year.
Higher prices at a cost
While Russia and OPEC benefit from higher oil prices, up almost 20 percent since the end of last year, their voluntary output cuts have opened the door to other producers to ramp up production and gain market share.
US crude oil production has risen by more than a quarter in the past two years, to 10.73 million bpd. Only Russia produces more, at about 11 million bpd.
Output from the likes of the United States, Canada and Brazil, which are not bound by the OPEC/Russian-led pact, is likely to rise further as crude prices rise.
“With oil prices rising more than costs, average industry profitability has turned positive this year,” Bernstein Energy said in a note this week, adding that the 50 largest listed oil companies need oil at $47 a barrel to break even in aggregate.